The Financial Services Authority, the City regulator, has told banks that
offering staff guaranteed bonuses which run for more than a year are likely
to breach new rules to be introduced on pay.

Hector Sants, the FSA chief executive, has written a"Dear CEO letter"to the companies it regulates warning them that new regulations to curb the excesses that led to the current financial crisis are soon to be introduced.

In the letter he has told companies to deliver a full remuneration policy statement to the watchdog by October to "verify that your remuneration policies and practices will be compliant with the proposed rule and code from 1 January, 2010".

"In particular, I would draw your attention to the fact that guaranteed bonuses which run for a period of more than one year may be inconsistent with effective risk management," Mr Sants wrote.

Currently there are no rules relating to pay policies in the FSA Handbook. However, as a result of the financial crisis, the watchdog told companies in October that this would change and in the letter, Mr Sants wrote: "We envisage that the FSA may well adopt a rule along the lines originally proposed [in March]."

The letter raises doubts over any remuneration deals negotiated since March. Banks use long-term guaranteed bonuses to keep and to lure top investment bankers.

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Mr Sants also warned companies to become compliant with the outline code now: "It is essential that the market should not revert to remuneration practices that would be incompatible with our intended outcomes if the rule and code become effective next year."

The new code, due to be published shortly, will be incorporated into the FSA's rulebook. The FSA is also expected to publish an annual report on banks' pay practices which will enable City regulator to name and shame those that break the code, and impose fines.

The FSA said it anticipates that "banking and/or broker dealer operations will fall within the scope" of the code.